Who is Going to Win the EURO 2008? A Statistical Investigation of Bookmakers Odds

This June one of the biggest and most popular sports tournaments will take place in Austria and Switzerland, the European soccer championship 2008 (UEFA EURO 2008). Therefore millions of soccer fans in Europe and throughout the world are asking themselves: "Who is going to win the EURO 2008?" Many people, including sports experts and former players, give their guesses and expectations in the media, but there is also a group with financial incentives, like some economists who expect economical increases for the country of the winning team and bookmakers and their customers who directly make money with their beliefs. Some predictions are only guesses, but other predictions are based on quantitative methods, such as the studies of UBS Wealth Management Research Switzerland and the Raiffeisen Zentralbank. In this report we will introduce a new method for predicting the winner. Whereas other prediction methods are based on historical data, e.g., the Elo rating, or the FIFA/Coca Cola World rating, our method is based on current expectations, the bookmakers odds for winning the championship. In particular we use the odds for winning the championship for each of the 16 teams of 45 international bookmakers. By interpreting these odds as rating of the expected strength of the teams by the bookmakers, we derive a consensus rating by modelling the log-odds using a random-effects model with a team-specific random effect and a bookmaker-specific fixed effect. The consensus rating of a team can be used as an estimator for the unknown "true" strength of a team. Our method predicts team Germany with a probability of about 18.7% as the EURO 2008 winner.